What determines wealth inequality and mobility and how can the policy maker influence it? This paper quantifies in closed form the bottom and the top (Pareto) tail of the distribution in a continuous-time heterogeneous agent model. Financial market imperfections play a key role, for which...

In order to design optimal policy instruments that shape the distribution of income we require realistic income models. A comparison between popular stochastic processes for income shows that most of them fail to match inequality in the US, especially at the top. The Geometric Brownian Motion...

This paper presents tractable two parameter stochastic processes of the drift-diffusion class in order to model economic processes with a focus on income. Starting from the resulting closed-form, cross-sectional distributions, easy-to-interpret expressions for mobility and inequality (including...